Royce Global Value Trust Manager Commentary
article 06-30-2018

Royce Global Value Trust Manager Commentary

Despite the modest slowdown in international growth, we believe the portfolio holds companies that are well positioned to execute effectively in a more challenging environment.


Fund Performance

Royce Global Value Trust was down 0.9% on a net asset value (“NAV”) basis and 2.8% on a market price basis for the year-to-date period ended June 30, 2018, in both cases underperforming its unleveraged benchmark, the Russell Global Small Cap Index, which rose 0.7% for the same period. While U.S. stocks generally did well, most international indexes slipped into negative territory during 2018’s first six months, as the combination of a modest slowdown in international growth, rising emerging market instability, a stronger dollar, and heightened trade war concerns all affected results.

What Worked… And What Didn’t

Six of the Fund’s 11 equity sectors detracted from first-half results. Led by Consumer Discretionary and Industrials, their respective negative impacts were somewhat modest. Vakrangee, which detracted most at the position level, is an Indian company that operates a network of outlets providing everyday transactional services to mostly rural consumers, primarily in under-served areas. During the first quarter, the company faced questions about corporate governance and its internal investment policy, among other issues. Although Vakrangee refuted these allegations, the cloud overhanging the firm’s credibility gave us pause, and we exited our position in April. Burkhalter Holding is the leading provider of electrical engineering services in Switzerland. Its stock price was hurt by increasing talk that competition would pressure pricing. Seeing these issues as more temporal than structural, we chose to hold our shares during the first half.

The stock of California-based laser diode and equipment maker Coherent underwent a correction in the first half after the company’s announcement of slightly better-than-expected results came with a more muted profit outlook. Already reducing our position in 2017, we held our position in the first half in expectation of a recovery in its previously strong profitability. The U.K.’s Clarkson is the world’s largest ship broker. After a few difficult years, the company described an improving environment for its business in hiring ships to transport commodities in March. The firm then reversed course in April when it issued a profit warning, which sent its shares into a tailspin. Thinking about the long term, we added to our position in the first half.

Energy was the top-contributing sector in the first half, and the top contributor at the industry level was energy equipment & services, as the rebound for oil prices fed through to improved prospects for these businesses. Norway’s TGS-NOPEC Geophysical, which provides geoscience data to oil and gas companies worldwide, was the top contributor in this industry and in the portfolio as a whole. Its revenue and earnings were boosted by improving exploration and production spending, higher oil prices, and the longer-term need for energy companies to replenish reserves, which is driving increased spending on seismic data. Virtu Financial uses its technology to act as a market maker and liquidity provider to the global financial markets. Based in New York City, the firm announced impressive first-quarter results in profits and earnings thanks to increased market volatility and high trading volumes. From the Industrials sector, Kirby Corporation has the largest inland and coastal tank barge fleet in the U.S. and also draws revenue from servicing and distributing industrial engines, transmissions, parts, and oil field services equipment. The tank barge markets seem to be recovering well, thanks to retirements of older barges, limited new builds, and solid utilization rates. Kirby has also benefited from two recent acquisitions over the last 18 months that are allowing it to drive industry consolidation.

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Relative to the Russell Global Small Cap, the major source of underperformance was ineffective stock selection in the Information Technology sector, most impactfully in the IT services and electronic equipment, instruments & components industries. Stock picking detracted in Health Care, particularly in the health care equipment & supplies group. Conversely, stock selection was a strength versus the benchmark in the Energy sector’s energy equipment & services industry, while a smaller advantage came from stock picks in Industrials, where the machinery group did best.

Top Contributors to Performance Year-to-Date Through 6/30/181 (%)

TGS-NOPEC Geophysical0.73
Virtu Financial Cl. A0.47
Kirby Corporation0.39
Bravura Solutions0.33

1 Includes dividends

Top Detractors from Performance Year-to-Date Through 6/30/182 (%)

Burkhalter Holding-0.28

2 Net of dividends

Current Positioning And Outlook

The market’s recent behavior looks curious to us. We hear optimism and solid progress from the management teams we meet with, see solid earnings reports, and observe consistently strong macroeconomic data. On the other hand, small-cap market leadership in the U.S. has stubbornly remained with defensive and yield-oriented stocks, while cyclicals have lagged. In addition, the rate of change in global growth has slowed, as measured by global PMIs (the Purchasing Managers’ Index, an indicator of economic health for manufacturing and service sectors), while the effects of tariffs are just now registering—and are only likely to intensify before a resolution is reached. All of this raises the degree of difficulty for U.S. equities to maintain their recent performance pace and for non-U.S. stocks to rebound. We do believe, however, that the portfolio holds companies that are well positioned to execute effectively in a more challenging environment.

Average Annual Total Returns Through 06/30/18 (%)

RGT -4.19-2.8110.509.654.75 10/17/13
XRGTX -1.59-0.8811.899.696.48 10/17/13

Annual Operating Expenses: N/A

1 Not annualized.

Important Performance, Expense and Disclosure Information

Important Performance and Expense Information

All performance information reflects past performance, is presented on a total return basis, and reflects the reinvestment of distributions. Past performance is no guarantee of future results. Current performance may be higher or lower than performance quoted. Returns as of the most recent month-end may be obtained at The market price of the Fund's shares will fluctuate, so that shares may be worth more or less than their original cost when sold.

The Fund invests primarily in securities of small-cap and mid-cap companies, which may involve considerably more risk than investing in larger-cap companies. The Fund's broadly diversified portfolio does not ensure a profit or guarantee against loss. From time to time, the Fund may invest a significant portion of its net assets in foreign securities, which may involve political, economic, currency and other risks not encountered in U.S. investments.

Current month-end performance may be obtained at our Prices and Performance page.

Notes to Performance and Other Important Information

The thoughts expressed in this report concerning recent market movements and future prospects for small company stocks are solely the opinion of Royce at June 30, 2018, and, of course, historical market trends are not necessarily indicative of future market movements. Statements regarding the future prospects for particular securities held in the Funds’ portfolios and Royce’s investment intentions with respect to those securities reflect Royce’s opinions as of June 30, 2018 and are subject to change at any time without notice. There can be no assurance that securities mentioned in this report will be included in any Royce-managed portfolio in the future.

As of 6/30/18, the percentage of Fund assets was as follows: TGS-NOPEC Geophysical was 1.6%, Virtu Financial Cl. A was 1.5%, Kirby Corporation was 2.1%, Bravura Solutions was 0.9%, Nanometrics was 1.0%, Vakrangee was 0.0%, Burkhalter Holding was 0.7%, Coherent was 0.4%, Clarkson was 1.0%, ManpowerGroup was 0.6%

Sector weightings are determined using the Global Industry Classification Standard (“GICS”). GICS was developed by, and is the exclusive property of, Standard & Poor’s Financial Services LLC (“S&P”) and MSCI Inc. (“MSCI”). GICS is the trademark of S&P and MSCI. “Global Industry Classification Standard (GICS)” and “GICS Direct” are service marks of S&P and MSCI. 

All indexes referred to are unmanaged and capitalization weighted. Each index’s returns include net reinvested dividends and/or interest income. Russell Company ("Russell") is the source and owner of the trademarks, service marks and copyrights related to the Russell Indexes. Russell® is a trademark of Frank Russell Company. Neither Russell nor its licensors accept any liability for any errors or omissions in the Russell Indexes and/or Russell ratings or underlying data and no party may rely on any Russell Indexes and/or Russell ratings and/or underlying data contained in this communication. No further distribution of Russell Data is permitted without Russell's express written consent. Russell does not promote, sponsor or endorse the content of this communication. The Russell 2000 Index is an index of domestic small-cap stocks. It measures the performance of the 2,000 smallest publicly traded U.S. companies in the Russell 3000 Index. The Russell 2000 Value and Growth Indexes consist of the respective value and growth stocks within the Russell 2000 as determined by Russell Investments. The Russell 1000 Index is an index of domestic large-cap stocks. It measures the performance of the 1,000 largest publicly traded U.S. companies in the Russell 3000 Index. The Russell Microcap Index includes 1,000 of the smallest securities in the Russell 2000 Index, along with the next smallest eligible securities as determined by Russell. The Russell Midcap Index measures the performance of the mid-cap segment of the U.S. equity universe. It includes approximately 800 of the smallest securities in the Russell 1000 Index. The Russell Global ex-U.S. Small Cap Index is an index of global small-cap stocks, excluding the United States. The Russell Global ex-U.S. Large Cap Index is an index of global large-cap stocks, excluding the United States. The Russell 2500 is an unmanaged, capitalization-weighted index of the 2,500 smallest publicly traded U.S. companies in the Russell 3000 index. The performance of an index does not represent exactly any particular investment, as you cannot invest directly in an index. Returns for the market indexes used in this report were based on information supplied to Royce by Russell Investments. Royce has not independently verified the above described information.

This material contains forward-looking statements within the meaning of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), that involve risks and uncertainties, including, among others, statements as to: 

-the Funds’ future operating results,

-the prospects of the Funds’ portfolio companies,

-the impact of investments that the Funds have made or may make, the dependence of the Funds’ future success on the general economy and its impact on the companies and industries in which the Funds invest, and

-the ability of the Funds’ portfolio companies to achieve their objectives.

This discussion uses words such as “anticipates,” “believes,” “expects,” “future,” “intends,” and similar expressions to identify forward-looking statements. Actual results may differ materially from those projected in the forward-looking statements for any reason.

The Royce Funds have based the forward-looking statements included in this commentary on information available to us on the date of the commentary, and we assume no obligation to update any such forward-looking statements. Although The Royce Funds undertake no obligation to revise or update any forward-looking statements, whether as a result of new information, future events, or otherwise, you are advised to consult any additional disclosures that we may make through future shareholder communications or reports.

The Fund is a closed-end registered investment company whose shares of common stock may trade at a discount to their net asset value. Shares of the Fund's common stock are also subject to the market risks of investing in the underlying portfolio securities held by the Fund.



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